Newton European outlook Newton Pan European equities: Newton European outlook Newton Pan European equities Raj Shant, Director of Investment Management – European Equities
26 February 2008
European outlook: European outlook Our global outlook
Putting Europe into a global and thematic context
Key themes and the positioning of our European portfolios
Summary
Global outlook summary: Global outlook summary Last Updated:
25/01/08 IRS
Europe in a global & thematic context: Europe in a global & thematic context European growth has been relatively resilient so far, though likely to slow
Strong Euro and no rate cuts from the ECB suggest slower second half growth
UK, Spain, Ireland & Denmark are the economies which have had the greatest increases property prices and household indebtedness
Other countries, like Germany, France and Italy still have high household savings rates and sound balance sheets
Banks in the “hot property” markets are directly vulnerable, banks elsewhere in Europe hurt by “reaching” for growth
Europe leads the world in many other areas: Environmental technology, pharmaceuticals and healthcare etc.
Portfolio positioning has reflected our cautious message: Portfolio positioning has reflected our cautious message Last Updated:
25/01/08 IRS We have been particularly concerned about potential risks in the financial system flagged by our Thematic Work… Underweight most (Western) financial and credit-dependent sectors
e.g. banks, investment banks, real estate, consumer discretionary … This in turn was likely to lead to slower GDP Growth, suggesting that tactical equity risk should be biased to sectors with stable cash flows Economically insensitive, defensive and ‘growth’ sectors
e.g. telecoms, healthcare, staples We have continued to see longer term structural reasons for maintaining equity exposure in the developing world and in selected resource and commodity areas Developing economy exposure, particularly domestic sectors
e.g. financials, consumer, telecoms, natural resources Energy, commodities, basic industries and their infrastructure
e.g. oil & gas, energy services, capital goods, basic materials, agriculture
The return of European large caps: The return of European large caps Large caps have higher and more stable margins
Large caps are cheaper than small caps on all metrics
Fund flows favour large caps (share buybacks, sovereign wealth funds, mutual fund flows)
2007 was the first year since 2002 that large caps outperformed small caps Last Updated:
New slide 18/01/08 IRS
European outlook summary: European outlook summary We remain wary of debt-dependent business models by sector and by country, much of the rest of the market looks attractive
We remain wary of small cap companies, but European large caps offer interesting opportunities
Undervalued growth remains in many stocks relating to our themes
Some unique investment opportunities available to careful stock pickers
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